Hormel Foods Consumer Products Sales Case Study Information

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1 Hormel Foods Consumer Products Sales Case Study Information Hormel Foods Consumer Products Sales Overview Consumer Products Sales (CPS) is the organization within Hormel Foods that sells shelf stable and perishable food products to retail customers, i.e. grocery (Kroger, Hy-Vee, Wegmans, Publix), super centers (Walmart and Super Target), drug (Walgreens and CVS), mass (Target and Shopko), warehouse (Costco and Sam s Club) and dollar (Family Dollar and Dollar General) outlets. A CPS sales representative is responsible for achieving volume goals specific to their customer through new item placement or increased sales of existing items. In order to get a new item placed, most customers demand an introductory set-up allowance (slotting fee) to cover the administrative costs of product set-up within their system as well as the cost of occupying the space within their warehouse and labor to get the new item onto the shelf. While introductory set-up allowances are an industry norm, they should be avoided if possible. They are viewed as another source of revenue for the customer, and an expense to CPS as the funds are not directly invested to drive the sales of the new item placed. To assist in this process, Hormel often times provides the sales team with funds to cover those costs. Though it varies by account, the average allowance covered by the company per new item slotted is $45/store. The CPS sales representative is also given a trade budget to help drive increased sales to the end-consumer once the product is in distribution. The amount of trade provided by the organization is tied to the volume of product you sell at your account. Trade dollars can be defined as monies given in an effort to defer retailer advertising costs and subsidize the retail price during a promotional period to support HORMEL branded products. Promotion means a feature, display, temporary price reduction or combination of tactics used to drive incremental sales. The trade offered, as well as advertising support, is sought by grocery stores everywhere and is provided by CPS sales representatives to their retail customers as ways to influence promotional activity and support retailer specific marketing programs. The CPS sales representatives also have marketing materials in the form of displays, coupons, print and online advertising at their disposal. This on-going support assists the CPS sales representative by creating a pull mechanism for HORMEL products. By aggressively pursuing sales goals

2 through creative strategies and fresh thinking, Hormel Foods CPS sales representatives have ample opportunities to grow sales and achieve their goals. A CPS sales representative has a portfolio of the most renowned grocery products in America to sell, from on-trend ethnic flavors such as CHI-CHI S salsa, HOUSE OF TSANG sauces and marinades and traditional staples such as SPAM luncheon meat, SKIPPY peanut butter, HORMEL chili, COMPLEATS microwaveable meals, NATURAL CHOICE lunchmeat, BLACK LABEL bacon and HORMEL pepperoni. In addition, the products within the Hormel Foods CPS portfolio offer a competitive advantage over similar products produced by other food manufacturers due to the strong trade and advertising support as well as Hormel Foods solid reputation of quality and food safety within the industry. How Hormel Foods CPS Sells to Grocery Customers Consumer Products Sales Reps have two different types of grocery customers: chain grocery stores and grocery stores supplied by a wholesaler. A chain grocery store is a group of stores with one central decision maker. A chain grocery store buys directly from Hormel Foods and self distributes product from their own distribution centers (warehouses). Chain accounts are typically higher volume stores. Hy-Vee and Kroger are both examples of chain accounts since they buy directly from Hormel Foods and supply their own stores with product. A wholesaler is a customer that buys directly from Hormel Foods and further distributes the products to smaller grocery stores. This is optimal for smaller independent stores since they do not want to tie up their capital in warehousing and trucks to service their stores. Independent stores can have more than one location and still find it beneficial to be serviced by a wholesaler. A CPS sales representative that calls on a wholesaler makes two sales calls, one to sell the wholesaler and the other to the smaller grocery store accounts that are supplied by the wholesaler. An example of a wholesaler account would be SUPERVALU. An example of a grocery store being serviced by SUPERVALU is Festival Foods or Hometown IGA. The CPS sales representative first must sell the product to SUPERVALU and gain their acceptance to supply the item and then resell the product to Festival Foods or Hometown IGA. The volume totals of the smaller accounts will be comparable to a chain account once they are added together. Every sale counts! All CPS sales representatives assist their customers with promotional tactics to help drive sales. CPS sales representatives usually have appointments once per month with chain and wholesale

3 accounts, to sell new products, promotions, offer items for future ad consideration, review Hormel Foods marketing support, and discuss item performance. Hormel Foods provides the CPS sales representatives the autonomy to work with their customers and create promotional ads, develop co-promotional opportunities with other brands, and plan marketing events in the stores. Given the amount of freedom and creative liberties that Hormel Foods allows its sales representatives, it is very similar to running their own business. SUPERVALU Company Overview SUPERVALU Inc. is one of the largest grocery wholesalers and retailers in the United States with annual sales of approximately $19 billion. SUPERVALU serves customers across the country through a network of approximately 2,000 owned, franchised and independently owned stores. Over 1800 of these are operated by wholesale customers serviced primarily by the Company s food distribution business and 197 traditional retail stores operated under five retail banners. It ranks in the top 100 of the Fortune 500 list. Headquartered in Minnesota, SUPERVALU has approximately 30,000 employees. Additional information about SUPERVALU can be found at SUPERVALU Wholesale Distribution Business Overview SUPERVALU is a wholesaler that supplies company-owned stores and stores owned by independent retail operators with products ranging from produce, fresh meats, and canned goods to household cleaning supplies and health and beauty products. The company buys these products directly from manufacturers and growers. SUPERVALU resells and generally delivers product to smaller retail grocery stores and chains that do not have the resources to move product directly from manufacturers. While SUPERVALU delivers the best products available at competitive prices, their merchandising teams work closely with manufacturers to develop and deliver comprehensive merchandising programs to independent retail operators. The purpose of their programs is to drive sales and profitability for the independent retail operators, SUPERVALU and the manufacturer. SUPERVALU s wholesale distribution business is comprised of three distribution regions, one of which is the Northern Region. The Northern Region includes 950 stores located in Alaska, California, Idaho, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Montana, North Dakota, Ohio, Oregon, South Dakota, Washington, West Virginia, Western Wisconsin, Wyoming, and Guam.

4 Sales Scenario I SUPERVALU Warehouse Northern Region (Day 1) As a Territory Manager for Hormel Consumer Product Sales (CPS), one of your responsibilities is calling on the SUPERVALU Northern Region. SUPERVALU Northern Region, located in Minneapolis, MN, is a grocery wholesaler supplying their own corporate retail stores as well as independent grocers. While independent retailers like to maintain their autonomy, they generally follow the merchandising recommendations made by SUPERVALU. Upon approval of new products, promotions and events at SUPERVALU, Territory Managers sell and implement the programs to each group of independent stores, i.e., Festival Foods, Hometown IGA or Deluxe Foods, supplied by SUPERVALU. In recent years, research and trends show that consumers are becoming more health conscious and are looking for more nutritional solutions at their retail food stores. Research also has shown that while the focus on healthy eating practices is growing, convenience continues to play an important role in the purchase decisions made by consumers. In response, Hormel has launched a new product called Natural Choice Snacks which it will be supporting with a variety of marketing collaterals and activities. Through your training and research you know this to be a competitive, but growing market. SUPERVALU will be launching a January promotion focusing around healthier, on-the-go meal options, catering to New Year s resolutions. The promotion will be held within their in-store flyers as well as digital app support. The promotion will focus on nutritious meal options that are convenient for on-the-go opportunities. From past experience you know SUPERVALU requires a minimum warehouse slotting allowance of $7,500. You are authorized to approve up to $5,000 per item warehouse slotting allowance. Any request for additional fees must be approved by your manager. In addition, you are aware SUPERVALU expects in-store samples of new, advertised products. You ve heard through CPS peers that SUPERVALU independent customers are eliminating additional product displays in an effort to enhance customer shopping experiences and reduce inventory as well as adding focus to natural and organic product assortments.

5 In preparation for planning the New Year s Resolution promotion and an upcoming product review, Casey Dahl, SUPERVALU Grocery Category Merchandiser, has agreed to meet with you. Casey a seasoned category merchandiser who relies on relationship selling, has been tasked to apply analytics to all buying decisions. Casey is an active runner and enjoys cooking for company. Casey is a passionate chef who is always on the go. You ve been calling on Casey for the past year and you two have a good working relationship. Getting Casey to focus on the opportunity is always a challenge. Throughout your meetings you ve decided that Casey is somewhat of a late adopter. Nevertheless Casey is considered a top buyer at SUPERVALU due to keen attention to detail and budgetary focus. You ve felt that this methodical approach has at times made him/her hesitant to change. Your goal is to present and gain distribution on the four new Natural Choice snacking items, provide slotting for the warehouse, and include them as part of SUPERVALU s upcoming New Year s Resolution promotion. In advance of this meeting you sent samples of each of the new Natural Choice Snacks products. As a CPS representative you will have marketing support in the form of coupons (often referred to as FSI s Free Standing Inserts) in newspapers, magazines and on-line activities. The FSI will focus on New Year s resolutions and the need for better-for-you snacking options. The coupons have a drop date to the markets of December 31, Please use the SUPERVALU New Item Form as your contract to close this sale. (To be posted on website.)

6 Sales Scenario 2 Deluxe Foods (Day 2) You are a Hormel CPS territory manager with headquarter sales call responsibilities on a 287 store traditional up-scale grocer called Deluxe Foods. Deluxe Foods is an independent retail chain supplied by SUPERVALU. These stores are currently located throughout the Midwestern United States with the largest presence in Minnesota, Iowa & western Wisconsin. Deluxe Foods is an upscale grocery chain with a focus on natural assortments. The previous buyer, Alex, had discontinued a large number of Hormel REV varieties. You felt that Alex had a negative impression of Hormel and had refused acceptance of our items no matter the situation or data presented. Alex is no longer on the desk and has been replaced by a young, ambitious buyer named Riley who is rumored to have a negative impression of Hormel from a previous role. In your last meeting with Riley, you learned that he/she is all about the business and appreciates a fact-based sales approach to support decisions rather than being persuaded by a sales pitch. During your conversation, Riley spoke about how busy his/her kids are and how difficult it is to stay healthy with little time to for him/herself. Riley informed you that Deluxe Foods is interested in offering better for you items, at a competitive price. Riley also voiced concerns on evolving natural trends and the migration of people sitting down for meals. You mentioned that our new innovative product, Natural Choice Snacks, was a possibility that would fit that need, and the brand has been performing admirably since its recent launch. After showing a little initial interest, he/she asked for this follow-up meeting to review the products more in-depth. In advance of this meeting you sent samples of each of the new Natural Choice Snacks products. With intense competition in the category, it will be a challenge to sell Riley on the items. Riley reminded you about Deluxe s standard introductory set-up allowance of $50 per item per store. Your task is to create a sales story showing how Natural Choice Snacks aligns with Deluxe Foods upscale natural model and how they can capture additional consumer purchases with adoption of this product. Natural Choice Snacks have been approved at SUPERVALU. During your upcoming meeting you must negotiate slotting for the 287 store chain, agree on first ship dates, item locations, potential item deletions and suggest a merchandising plan to effectively promote the item(s). Please use the Deluxe Foods New Item Form as your contract to close this sale. (To be posted on website.)

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